Suit against Berkshire over Sokol dismissed

Wednesday

Mar 21, 2012 at 12:01 AMMar 21, 2012 at 10:01 AM

WILMINGTON, Del. - Berkshire Hathaway has won dismissal of a shareholder lawsuit that stemmed from allegations that former executive David Sokol profited by violating the company's insider-trading policy.

WILMINGTON, Del. — Berkshire Hathaway has won dismissal of a shareholder lawsuit that stemmed from allegations that former executive David Sokol profited by violating the company’s insider-trading policy.

Shareholders sued the conglomerate’s board for refusing to take legal action against Sokol, a former heir apparent at Berkshire.

Sokol, who was the CEO of Columbus-based private-jet company NetJets, resigned last year after disclosing he had bought 96,000 shares of Lubrizol Corp. and then urged Berkshire Chief Executive Warren Buffett to acquire the chemical company.

The episode has raised questions about Buffett’s oversight of Berkshire, which he has led since 1965.

Buffett said last year that Sokol violated the company’s insider-trading rules to score a $3 million windfall profit on Lubrizol shares, which rose by nearly a third after Berkshire announced it would buy the company.

Although Delaware Chancery Court Judge Travis Laster dismissed the case on Monday, he described the claims against Sokol as “really strong” and said it might raise questions if the board does not pursue Sokol. “If they are not doing something with a claim like that, you have to wonder why,” he said.

Laster also said that the initial news release from the company disclosing Sokol’s trade in Lubrizol suggested “a willingness to let him slide.”

However, Laster said the shareholders had failed to make their argument that the board was so beholden to their prestigious positions that they could not be trusted to pursue Sokol, a once-close associate of Buffett.

The shareholders wanted the right to pursue that litigation on behalf of the company in what is known as a derivative lawsuit.

Laster accepted Berkshire Hathaway arguments that the company could reasonably want to wait for the outcome of an investigation by the federal Securities and Exchange Commission and might still sue Sokol.